Does LPKF Laser & Electronics (ETR:LPK) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that LPKF Laser & Electronics SE (ETR:LPK) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for LPKF Laser & Electronics

What Is LPKF Laser & Electronics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that LPKF Laser & Electronics had €8.98m of debt in September 2023, down from €10.5m, one year before. However, it also had €5.03m in cash, and so its net debt is €3.94m.

A Look At LPKF Laser & Electronics' Liabilities

The latest balance sheet data shows that LPKF Laser & Electronics had liabilities of €50.1m due within a year, and liabilities of €3.81m falling due after that. On the other hand, it had cash of €5.03m and €30.6m worth of receivables due within a year. So it has liabilities totalling €18.3m more than its cash and near-term receivables, combined.

Given LPKF Laser & Electronics has a market capitalization of €228.2m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if LPKF Laser & Electronics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, LPKF Laser & Electronics made a loss at the EBIT level, and saw its revenue drop to €124m, which is a fall of 2.7%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months LPKF Laser & Electronics produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €353k at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of €5.0m. So to be blunt we do think it is risky. For riskier companies like LPKF Laser & Electronics I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.